Alternative dispute resolution (ADR) is often considered in lieu of traditional litigation for many types of disputes. ADR methods are preferable to resolving disputes in court because they can be less expensive and more efficient than litigation. While in many contexts ADR is preferable to a court based resolution, parties should consider carefully whether placing mandatory arbitration clauses in their agreements is always the best solution. Below is an overview of some the misconceptions and considerations parties should keep in mind when drafting their contracts.

Arbitration most closely resembles a traditional courtroom proceeding. Arbitration requires a neutral person or arbitrator to listen to arguments and evidence presented by both parties and issue a decision. Unlike a trial, arbitration does not incorporate many of the formalities of a court proceeding, such as the rules of evidence. Arbitration can be binding or nonbinding. In a binding arbitration, the parties agree to abide by the arbitrator’s decision and waive their right to a trial. In a non-binding arbitration, the parties have the right to reject the arbitrator’s decision and request a trial if they are not pleased with the arbitrator’s verdict.

In many cases, arbitration is preferable because parties want a neutral person to make a decision in a non-courtroom setting. In addition, arbitration may be suitable in matters that are particularly complex or require specialized knowledge. But mandatory arbitration may not be ideal in all types of disputes. First, arbitration can be a lengthy process. Although discovery generally does not take place (thus saving time and money on deposing witnesses and conducting interrogatories), arbitrators do have the discretion to allow certain pre-trial activities. Typically parties exchange documents and sometimes even conduct depositions. In addition, the hearings themselves do not necessarily proceed more quickly than a typical trial. Parties must still present testimony and evidence to an arbitrator in much the same way they would present evidence to a judge.

Another disadvantage of arbitration is the absence of formal rules- because typical rules of evidence do not apply, arbitrators also do not have the authority to reject irrelevant or extraneous evidence. In addition to increasing the duration of proceedings, the absence of formal rules also may deprive the parties of certain procedural safeguards that are inherent in the court system. The lack of an opportunity to appeal the verdict may be detrimental to parties who want access to the full range of legal rights.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.